Chapter 1: The Necessity of Carbon Pricing

Implementing a price on carbon emissions is not the sole solution to climate change, yet it is a critical component of any credible environmental strategy. Various regions worldwide, notably much of Europe, significant parts of North America, and China, have adopted carbon pricing mechanisms. Currently, 39 nations and 33 sub-national jurisdictions have established a carbon price.

Reflecting on economist Arthur Pigou's insights, it's clear that while markets excel at enhancing efficiency and reducing costs, they often overlook certain transaction costs. Pigou emphasized the importance of addressing externalities—some of which can be beneficial, like increased tourism from airport funding, while many others are detrimental, impacting society and the environment negatively. He proposed a conservative method of incorporating these external costs into the transaction price, allowing market forces to respond accordingly. This principle has been applied to various goods, including tobacco and alcohol.

The rationale for applying this concept to greenhouse gas emissions is well-founded, adhering to conservative economic principles and supported by historical precedents. This is precisely why major greenhouse gas emitters vigorously oppose carbon pricing, as do politicians who traditionally advocate for conservative economic policies but hesitate to embrace carbon pricing.

Section 1.1: Determining Carbon Pricing

A pressing question arises: what constitutes an appropriate price for carbon? This inquiry is complex due to several factors, including the difficulty of delineating the impacts within a specific jurisdiction. Some argue that only local effects should factor into the pricing, but this view neglects the global nature of climate change and its ramifications.

The correct approach is to consider global impacts, which complicates the calculation of effects occurring far from the source of emissions. This challenge has led many experts to analyze the social cost of carbon across different countries.

#### Subsection 1.1.1: Understanding the Social Cost of Carbon

The social cost of carbon is defined as the projected future costs associated with the emission of one ton of carbon dioxide today. This figure tends to rise annually in most assessments. However, discrepancies exist among countries regarding its definition and calculation methods. For instance, Canada estimates its social cost at US$194, whereas the USA's Environmental Protection Agency is proposing to align its figure to approximately US$190.

Section 1.2: The Broader Context of Carbon Pricing

Carbon dioxide is the main greenhouse gas emitted, yet it is not the only one. Methane, a far more potent greenhouse gas, and various refrigerants also contribute significantly to global warming. Additionally, determining appropriate discount rates and selecting conservative climate impact scenarios further complicate the establishment of a coherent carbon pricing strategy.

Chapter 2: Current Implementations of Carbon Pricing

When comparing actual carbon prices to the social cost, Canada’s carbon pricing program stands out. It is designed to gradually increase, currently set at US$48, which includes other greenhouse gases such as methane. However, this amount remains significantly lower than the social cost of carbon.

The first video titled "How Carbon Pricing Can Save the World | Johan Eyckmans | TEDxKULeuvenBrussels" delves into the significance of carbon pricing as a tool for climate action. It discusses innovative approaches and potential pathways to implement effective pricing strategies that can lead to significant reductions in emissions.

Moreover, California's cap-and-trade system currently prices carbon at US$36, while China's new system stands at US$10 per ton. However, political will to implement comprehensive carbon pricing remains weak in many regions, including the USA, which lacks a national carbon price despite proposals.

The second video, "3 Common Carbon Pricing Myths," addresses prevalent misconceptions about carbon pricing and its role in environmental policy. It highlights the potential benefits and effectiveness of adopting carbon pricing mechanisms worldwide.

The European Union is taking significant steps forward, requiring all exporters to report on the carbon content of their products by 2026, with a price set to reflect the emissions trading scheme. As the EU moves to include additional greenhouse gases, it remains a leader in carbon pricing, although current prices still fall short of the social cost of carbon.

In conclusion, while carbon pricing is a vital tool in the fight against climate change, it is not the only solution. A multifaceted approach that includes aggressively phasing out high-emission energy sources, investing in renewable energy, and promoting sustainable practices will be necessary for meaningful progress.

As a reminder, key actions include:

• Electrifying all sectors
• Expanding renewable energy generation
• Developing extensive electrical grids
• Enhancing energy storage solutions
• Increasing afforestation efforts
• Reforming agricultural practices
• Improving industrial processes
• Implementing robust carbon pricing
• Phasing out coal and gas generation
• Ending fossil fuel subsidies
• Banning HFCs in refrigeration
• Staying focused on effective strategies and avoiding distractions.